Does BPO / KPO Continue to Interest CAs? Case Study Business Management Services Back Office Outsourcing and Offshoring

Presented by:CA (Dr.) Suresh Surana

7 May 2011

Contents

1 Outsourcing

2 Offshoring

3 Business Process Outsourcing

4 Knowledge Process Outsourcing – An extension of BPO

5 BPO – Service Segments & KPO Service Segments

6 Advantage India

7 BPO / KPOs and CAs – Opportunities & Challenges

8 India Perspective - Challenges & Opportunities

9 Case Study - Accenture

“Do What you do Best “Do What you do Best “Do What you do Best “Do What you do Best

Outsourcing MantraOutsourcing MantraOutsourcing MantraOutsourcing Mantra

“Do What you do Best “Do What you do Best “Do What you do Best “Do What you do Best

and and and and

Outsource the Rest”Outsource the Rest”Outsource the Rest”Outsource the Rest”

Outsourcing

Outsourcing is the process of shifting /delegating / transferring a service /delegating / transferring a service /process / function to a third-parties /external service providers which wouldotherwise be an in-housefunction/service/process.

Outsourcing Enablers

Mainframe Computers

Offshore Labour Global

Connectivity

Software Platforms

Low Cost Telco PBX Switch

Logistics &

Fulfilment

Computing

Services

Back Office

Call Centers

Knowledge

Process

ITService

s

1960’s 2009’s2003’s2000’s1990’s1970’s 1980’s

Why Outsourcing?

Access to highly

qualified skill

pool

Focus on Core

Business

Reduce

Operating Cost

pool

Time zone

difference

Foster

Innovation

Conserve

CapitalImprove Quality

Increase Speed

to Market

Create Valuable

cost structureWhy do

companies

outsource?

OffshoringOffshoring is a type

of outsourcing.

Offshoring simply

means having the

outsourced businessoutsourced business

functions done in

another country. India has emerged as thedominant player inoffshoring, particularly insoftware work. Majorcompanies working asoffshoring serviceproviders in India includeTata Consultancy Services(TCS), Infosys and Wipro.

Business Process Outsourcing (BPOs)

OrganisationExternal Service

ProvidersCertain business processes Outsourced

Various Types of BPOs

On Shore BPO When an enterprise outsources its activities to another company located in the same country

Near-shore BPO

Off-shore BPO

When activities are outsourced to a neighbouring country

When business processes are outsourced to a remote or far off country

Intellectual Intellectual

The Outsourcing “Value Stack”

Logistics &

Fulfillment

Computing

Services

Back Office

Call Centers

Knowledge

Process

ITService

s

Facilities Facilities

Labour

Technology

Labour

Technology

Process

Facilities

Labour

Technology

Process

Facilities

Labour

Technology

Process

Intellectual

Facilities

Labour

Technology

Process

Intellectual

Facilities

Labour

Technology

Process

Technology Technology

Technology

TechnologyTechnology

KPO means an extension of BPO involving greater business complexity and

focusing on knowledge-intensive business processes that require significantdomain expertise. Knowledge workers delivering these services are highlyeducated and trained, and trusted to make important decisions on behalf of their

Knowledge Process Outsourcing – An Extension of BPO

educated and trained, and trusted to make important decisions on behalf of theirclients.

�Knowledge process outsourcing (KPO) is the most advanced form of outsourcingthat includes knowledge-intensive business processes with high level ofspecialized domain related knowledge

�The motive of KPO is to bring higher value to organizations by providing businessexpertise rather than process expertise and reduce variable cost

� Less complex and more process-oriented

BPO ���� KPO

� Higher degree of complexity

� Insight-driven� Volume-driven

� Relies on cost arbitrage

� Outsourced projects can be exclusive of the client

� Scale-up based on infrastructure and logistics

� Insight-driven

� Relies on knowledge arbitrage

� Greater collabration between vendor and client

� Scale-up based on skills and domain expertise

BPO KPO

BPO- Service Segments

�Customer Support (Call Centers, help

Desks)

�Human Resources Services

(Payroll processing)

�Finance and

Accounting Services

(Financial accounting & Desks) (Payroll processing)

(Financial accounting &

tax returns processing)

�Engineering and

Design

(Geographic Information systems)

�Transcription (Medical transcription)

�Web site services

(Web hosting and on-line help)

KPO - Service Segments

Investment

Research

Services

Valuation and

Fairness Opinions

Business

Research

Services

Data Analytics

Market

Research

Services

Business Operations

Support, Analytics &

Management

Legal Process

Outsourcing

Financial Process

Outsourcing

Media Process

Outsourcing

KPO

Why Outsource to India?

Why Outsource to India?

UK

AustraliaSingapore

Ireland

High

� Infrastructure

� Communications

� Other basicinfrastructure

� Country risks/FDI

Location attractiveness

China

India

UK

Philippines

Low

� Country risks/FDIincentives

� Attractive incentives

� Politicalenvironment

� Time zoneattractiveness

People attractiveness� Quality

� Cost

� Type of skills

� English languageSource: Mckinsey analysis

Low High

Mexico

Advantage India

50

60 52

Indian BPO industry is estimated to reach US$ 52 billion and KPO industry is estimated to reach US$ 11.2 billion

BPO

0

10

20

30

40

50

2008 2009 2010 2011 2012

(US$ Billion)

11 14

21

32

Source : NASSCOM

3.05 4.4 6.38.8

11.2

KPO

RussiaIreland

Poland

Hot

DestinationsGlobal KPO Service Providers

Philippines

Chile

India

China

Hungary

The Czech Republic

Israel

The domestic KPO industry is facing stiff competition from countries like the Philippines, Russia, China,

Poland and Hungary as these have qualified KPO professionals, low-cost, domain expertise, location

advantage, sales and marketing capabilities and data compliance.

� According to AT Kearney's 'Global Services LocationIndex 2011', a ranking of the top 50 most attractiveoffshoring destinations, India continues to be the mostpreferred destination for companies looking to offshoretheir IT and back-office functions.

Future of BPO

� (NASSCOM)—the apex body for software services inIndia—has recently released publication-StrategicReview 2010, the IT-BPO sector's revenue as aproportion of the country's gross domestic product(GDP) has grown from 1.2 per cent in 1998-99 to anestimated 6.1 per cent in 2010-11.

� NASSCOM predicts that the Indian IT-BPO revenuesmay touch US$ 225 billion by 2020.

BPO / KPOs and CAs – Opportunities and Challenges– Opportunities and Challenges

BPO / KPO Service Offerings

� From the Chartered Accountants’ perspective, the Service Offerings can

broadly be classified as under -

� Payroll processing

� Tax returns processing

� Investment Analysis & Research

� Financial Process Outsourcing

� Transaction Process Outsourcing

� Pricing Models

– Fixed cost

– Time and Material

Project Models

–

� Execution Models

– Offsite processing

– Onsite processing

� Short Term

� Long term

� Combinations of above

Off-line

� In this case, the outsourcing service provider receive the source/basic documents either

Depending on the nature of work, any one or a combination of the below modalities

is adopted for execution of the work.

General Work Modalities

� In this case, the outsourcing service provider receive the source/basic documents either

� electronically i.e. through e-mail or

� physically i.e. by courier/post

� The outsourcing service provider then processes these documents and the final output/report isprepared.

� This final output/report is then delivered to the client electronically either via e-mail or by directupload to the clients’ systems.

� The final output/report as well as the source/basic documents may be in different formats viz.Word document, an Excel file, PDF etc.

General Work Modalities

� On-line

� In this case, the service provider accesses the client’s systems/server directly through Internetby using services/software such as Remote Access Service (RAS), VPN, Citrix etc.

�With this access the service provider input/process data, record entries, generate reports fromthe client’s system etc.the client’s system etc.

� The clients are assured about their data security as only the party for whom they configurethese services/software can access their systems and this facility can be withdrawn any timeby simply changing the users’ rights.

Client

Network

Application Server

Local users

Client scans & uploads Input Documents (viz. Loan repayment schedule, Payroll details, Bank Statements, Checks Register etc,)

1

2Client Application

Client downloads the review notes provided by Service Provider and generates final accounts

9

CITRIX SERVER

Process Workflow - Illustration

Service Provider Network

Secured connection

Client intimates Service Provider

2

Internet

Application server

Service Provider downloads the Input documents and extracts necessary information from Client’s Application server using citrix client software

3 Service Provider uploads the Output Documents

5

Service Provider intimates Client

8

100 mbps

Local Users

Windows 2008 Server

4

Citrix CONNECTION

Generating and reviewing the relevant reports and books of accounts

6

FINANCIAL STATEMENTS

Booking of preliminary entries based on available inputs

Booking of final entries based on the review, generating final set of reports and preparing the review notes for the client

7

CITRIX SERVER

Overview of the Process Workflow – Payroll Processing

� The client scans & uploads the input documents and records, pertaining to the agreedservice agreement.

� The client intimates the service provider, who then initiates further processing.

� The service provider downloads the documents and records and thereafter extracts thenecessary information from the Client Application Server which would be relevant forthe Payroll Processing.

� Thereafter, the service provider books the preliminary entries based on the availabledata.

Overview of the Process Workflow – Payroll Processing

� The next step is the generating & reviewing of the relevant reports and books ofaccounts

� After which based on the review, the final entries are booked. The final set of reports isgenerated thereafter and the review notes are prepared for the client.generated thereafter and the review notes are prepared for the client.

� After generating the final set of reports, the service provider uploads the output documentsnecessary for the payroll processing and then intimates the client.

� The client downloads the review notes provided by the service provider and generates the finalaccounts.

Opportunities for CAs

� The BPO / KPO segment presents a huge potential for Chartered Accountants,which can be gauged from some of the following specialized skills attributable toa CA –

� Expertise in setting up of companies including a BPO / KPO unit� Expertise in setting up of companies including a BPO / KPO unit

� Well-versed with the setting up of the Organizational Systems & its implementation

� Specialized taxation knowledge helps in tapping the huge market for payroll processing &tax return processing

� Deep understanding of the financial markets, regulatory & commercial aspects

Challenges for CAs

� Growing availability of Finance Professional in competing economies

� Demanding work schedule

� Constant need for regular technology upgradation� Constant need for regular technology upgradation

� Tough competition from other finance professionals including MBAs

India Perspective –Challenges & Opportunities

� External

� Stiff competition from emerging destinations for BPO servicing such

Challenges

destinations for BPO servicing such as China, Philippines, Russia etc.

� Stringent internal opposition in US on Outsourcing jobs to third countries including India.

External Challenges

� Rupee Appreciation & Stability Compounded By Eroding Margins

External Challenges

� Slow Growth rate in Major Outsourcing Economies

External Challenges

� Slow Growth rate in Major Outsourcing Economies

� Internal

� Retaining employees

� Client Acquisition and Retention

Challenges

� Quality and compliance issues

� Resource and Skill Gaps

� Productivity

� Funding & Scale

� Physical Infrastructure

� Smaller Firms Plight

Internal Challenges

� Rising Cost due to Inflation

� Knowledge Driven Industry – Availability of highly skilled professionals

� India’s emergence as the back office of the world

Opportunities / Strengths

world

� Market leader due to early head start

� Proven Capabilities of quality and time bound Project execution

� Consistent growth rate of the Indian economy

Case Study -

Brief Overview of Accenture Plc & Accenture India

Brief Overview of Accenture Plc

� Accenture plc is a global management consulting, technology services and

outsourcing company. Previously incorporated in the USA, then in Bermuda, since 1

September 2009 the company has been incorporated in Ireland with its global

headquarters there in Dublin.

� Accenture originated as the business and technology consulting division of accounting

firm Arthur Andersen. In 1989, that division split from Arthur Andersen and began using

the name Andersen Consulting.

� On January 1, 2001 Andersen Consulting adopted its current name, "Accenture". The

word "Accenture" is supposedly derived from "Accent on the future".

� It is the largest consulting firm in the world, as well as being a global player within the

technology consulting industry.

Brief Overview of Accenture Plc

� Accenture is a Fortune Global 500 company. As of January 2011, the company had

more than 214,000 employees in 120 countries.

� For the fiscal year ended 31 August 2010, the company generated net revenues of US

$23 billion. Its net profit was $1.8 billion in FY2010, an increase of 12% over 2009.$23 billion. Its net profit was $1.8 billion in FY2010, an increase of 12% over 2009.

� Accenture is listed on the New York Stock Exchange (NYSE) with a current market

capitalization of US$ 36 billion.

About Accenture India

� Accenture has been operating in India since 1987, and was the first Multi National Consulting

firm to set up operations in India.

� Accenture India serves more than 500 global clients, including Fortune® 1000 companies,

through its operations in Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune.

� India is also an integral part of Accenture's Global Delivery Network, a global network of 55

integrated delivery centres across five continents, with more than half Accenture’s delivery

centres being in India.

� Accenture India employs over 60,000 diverse people from different backgrounds with vast

ranges of skills and experience.

� Accenture India besides providing consulting and technology services also is a

prominent player in providing Outsourcing services including Finance & Accounting BPO

services by actively engaging finance professionals including Chartered Accountants,

MBAs.

Accenture Finance & Accounting BPO Services

� Market leader in finance and accounting BPO services. Collaborate with clients to redefine their

finance operations, unleash value, improve the bottom line and give them the space to focus on

their core business. Highlights of the finance & accounting outsourcing services -

� Fifteen years of operational experience in finance and accounting BPO services.

� More than 6,500 experienced finance and accounting professionals serving more than 50

contracts for 46 clients.

� Seventeen clients are in the Fortune Global 500 list—four of these in the top 100.

� Global scope and scale: finance and accounting BPO services provided to more than 40 clients

in 37 languages across 145 countries.

Concluding Remarks

General Electric’s Jack Welch’s 70:70:70 rule General Electric’s Jack Welch’s 70:70:70 rule General Electric’s Jack Welch’s 70:70:70 rule General Electric’s Jack Welch’s 70:70:70 rule ––––

“70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should “70% of your processes should be outsourced , 70% of those should be outsourced offshore and 70% of your offshore outsourcing should be outsourced offshore and 70% of your offshore outsourcing should be outsourced offshore and 70% of your offshore outsourcing should be outsourced offshore and 70% of your offshore outsourcing should

be done in India.”be done in India.”be done in India.”be done in India.”

Name : Suresh Surana

Contact Details:

Name : Suresh SuranaDesignation : Managing PartnerE-mail : suresh@ss-associates.comTel. : 2287 5770 / 6121 4444

Questions?Questions?Questions?Questions?

17 February 2011 46

Thank You

47